Federal Reserve leaves interest rates unchanged despite rising inflation

The Federal Reserve voted Wednesday to keep interest rates unchanged, its final monetary policy decision before the midterm elections.

The decision to hold rates steady came despite inflation that jumped from a 3.4% annual rate in August to 3.7% in September.

Fed Chairman Kevin Warsh also announced that the central bank will reduce the number of meetings at which it votes on interest rates from eight to seven next year and by two in 2028. Warsh said that the seismic change to the schedule would help improve the “quality” of its decisions.

A major driver of that inflation is the soaring cost of gas, diesel and crude oil. These higher prices have hit consumers hard, and many economists say the spillover effect of rising gas prices has started to show up across the broader economy.

In its post-decision statement, the Fed acknowledged the problem that inflation is causing but said it needs more data before moving forward with a rate hike.

“Inflation remains elevated. The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee’s 2 percent goal,” it said.

The Fed’s preferred inflation gauge, the personal consumption expenditures price index, will not be released until Thursday; it is expected to touch 3.7%.

“This suggests that the Fed might not be done tightening and future hikes will depend on the incoming data,” economists at Morgan Stanley said. In central bank speak, “tightening” refers to raising rates.

“As we widen the frame to survey the broad economic and financial picture, real activity is clearly pointing in the right direction,” Warsh said in a post-meeting news conference. “That’s good news, but inflation is too high.”

“Energy and related prices have moved higher again in recent weeks, and our job is to ensure that relative price changes in some sectors do not broaden out across the economy,” he added.

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Wednesday’s vote was not unanimous, unlike September’s 12-0 vote to hike rates, the first time since 2023 that the central bank had raised its benchmark rate.

Two officials, governor Lisa Cook and Cleveland Fed President Beth Hammack, dissented in favor of a rate hike. The dissent by Cook, whom President Donald Trump is attempting to fire, was her first ever.

An interest rate hike could have added slightly more pressure to already beleaguered consumers.

Voters have consistently told pollsters that rising prices, especially in the housing and energy sectors, are their primary concerns as they cast their ballots.

The most recent NBC News poll found Trump’s approval rating at 27% for his handling of the cost of living and 29% for his handling of the Iran war.

Two-thirds of Americans said the soaring gas prices triggered by Trump’s Iran war were either a “very serious” or “somewhat serious” problem. More than half of respondents said current economic conditions had caused them to change what kinds of groceries they buy.

Warsh said the midterms and politics “played no role in the decision” to keep rates where they are.

Asked about Trump’s recent claims that members of the Fed’s board and rate-setting committee were hostile to the president, Warsh defended his colleagues.

“We just came out of a heck of a family fight, serious, sober discussion,” he said. “I think we came to the right policy decision for this moment, and I’m honored to be here and honored to be the chairman of this group.”

The central bank also acknowledged the economic anxiety gripping much of the country.

“Economic activity is expanding at a strong pace,” the rate-setting Federal Open Market Committee said. “While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient.”

Wednesday’s announcement and the Fed’s acknowledgment that inflation remains well above its goal set the stage for a rate increase during December’s monetary policy meeting.